-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LGbQywX+DWlXZeI2tWAhk4SdxO21eWsM94RdWYtqeUthJqtEqV4pbAqzfHYFEbth Wayy8y6VmtNh/d8qvEp8TA== 0000003721-95-000015.txt : 19951119 0000003721-95-000015.hdr.sgml : 19951119 ACCESSION NUMBER: 0000003721-95-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN GROUP INC CENTRAL INDEX KEY: 0000003721 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 380290950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06016 FILM NUMBER: 95590945 BUSINESS ADDRESS: STREET 1: 25101 CHAGRIN BLVD # 350 CITY: BEACHWOOD STATE: OH ZIP: 44122-5619 BUSINESS PHONE: 2167655818 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Not Applicable to Commission file number 1-6016 THE ALLEN GROUP INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 38-0290950 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122 (Address of Principal Executive Offices) (Zip Code) (Registrant's Telephone Number, Including Area Code) 216-765-5818 NOT APPLICABLE Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock: Outstanding at Class of Common Stock October 31, 1995 Par value $1.00 per share 26,463,969 Exhibit Index is on page 19 of this report. Page 1 of 21 Pages. THE ALLEN GROUP INC. TABLE OF CONTENTS Page No. PART I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheets - September 30, 1995 and December 31, 1994 3 Consolidated Statements of Income - Three Months and Nine Months Ended September 30, 1995 and 1994 4 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 1995 and 1994 5 Notes to Consolidated Condensed Financial Statements 6 - 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 16 PART II. Other Information: Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18 Exhibit Index 19 PART I - FINANCIAL INFORMATION ITEM I - FINANCIAL STATEMENTS THE ALLEN GROUP INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in Thousands)
September 30, December 31, 1995 1994 (Unaudited) ASSETS Current Assets: Cash and equivalents $ 11,005 $ 55,240 Accounts receivable, net (Note 2) 88,166 63,117 Receivable from joint venture - 857 Inventories (Note 3) 68,345 58,316 Other current assets 5,172 661 Total current assets 172,688 178,191 Property, plant and equipment, net 56,958 56,860 Net investments in and advances to joint venture (Note 6) - 24,411 Investment in FOR.E.M. S.p.A. (Note 7) - 8,458 Excess of cost over net assets of businesses acquired 68,555 56,525 Other assets 38,094 33,271 TOTAL ASSETS $336,295 $357,716 LIABILITIES Current Liabilities: Notes payable and current maturities of long-term obligations $ 8,155 $ 154 Accounts payable 35,436 26,568 Accrued expenses 28,847 37,955 Income taxes payable 11,679 2,675 Deferred income taxes 3,221 2,899 Total current liabilities 87,338 70,251 Long-term debt (Note 8) 30,961 44,910 Other liabilities and deferred credits 17,171 18,374 TOTAL LIABILITIES 135,470 133,535 STOCKHOLDERS' EQUITY Common stock 29,508 29,146 Paid-in capital 167,503 161,644 Retained earnings (Note 6) 27,185 56,902 Translation adjustments (181) 23 Less: Treasury stock (at cost) (18,847) (17,479) Unearned compensation (3,420) (4,310) Minimum pension liability adjustment (923) (1,745) TOTAL STOCKHOLDERS' EQUITY 200,825 224,181 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $336,295 $357,716 See accompanying notes to the Consolidated Condensed Financial Statements.
THE ALLEN GROUP INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Sales $ 88,300 $ 55,230 $231,445 $156,498 Costs and expenses: Cost of sales (54,712) (32,572) (142,316) (92,378) Selling, general and administrative expenses (14,173) (12,180) (40,513) (34,966) Research and development and product engineering costs (3,632) (1,671) (12,478) (6,180) Interest and financing expenses: Interest Expense (984) (757) (2,667) (2,464) Interest Income 328 478 1,424 1,314 Income before taxes and minority interest 15,127 8,528 34,895 21,824 Provision for income taxes (6,442) (2,984) (14,090) (7,890) Income before minority interests 8,685 5,544 20,805 13,934 Minority interests (1,077) (99) (2,006) (412) Income from continuing operations 7,608 5,445 18,799 13,522 Discontinued operations (Note 6): Income from discontinued automotive and truck products operations 2,286 3,123 7,852 6,908 Spin-off transaction costs (422) - (733) - Net Income $ 9,472 $ 8,568 $ 25,918 $ 20,430 Earnings per common share (Note 4): Income from continuing operations $.28 $.21 $.70 $.52 Discontinued operations (Note 6): Income from discontinued automotive and truck products operations .09 .12 .30 .27 Spin-off transaction costs (.02) - (.03) - Net Income $.35 $.33 $.97 $ .79 Average common and common equivalent shares outstanding 27,174 26,092 26,838 25,996 See accompanying notes to the Consolidated Condensed Financial Statements.
THE ALLEN GROUP INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Amounts In Thousands) (Unaudited)
Nine Months Ended September 30, 1995 1994 Continuing Operations: Cash (used) provided by operating activities of continuing operations $(16,217) $ 31,174 Cash flows from investing activities: Capital expenditures (13,125) (4,436) Sales and retirements of fixed assets 96 24 Capital expenditures and start-up costs relating to centralized emissions inspection programs (8,137) (27,556) Capitalized software product costs (3,128) (1,585) Acquisition of business, net of cash acquired (Note 7) (382) - Proceeds from sale of automotive diagnostics and lease financing business - 19,737 Investments in Telecommunications ventures (1,000) (212) Cash used by investing activities (25,676) (14,028) Cash flows from financing activities: Net repayments of long-term debt (5,015) (1,830) Dividends paid (3,942) (3,126) Cash included with spin-off distri- bution (Notes 5 and 6) (4,002) - Exercise of stock options 256 69 Treasury stock sold to employee benefit plans 1,171 517 Cash used by financing activities (11,532) (4,370) Discontinued Operations: Net cash provided by discontinued automotive and truck products business 9,190 1,804 Net cash (used) provided (44,235) 14,580 Cash at beginning of year 55,240 11,173 Cash at end of period $ 11,005 $ 25,753 See accompanying notes to the Consolidated Condensed Financial Statements.
THE ALLEN GROUP INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. General: In the opinion of management of The Allen Group Inc. (the "Company"), the accompanying unaudited consolidated condensed interim financial statements reflect all adjustments necessary to present fairly the financial position of the Company as of September 30, 1995 and the results of its operations and cash flows for the periods ended September 30, 1995 and 1994. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The year-end 1994 consolidated condensed balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Certain reclassifications have been made to the financial statements to conform to the 1995 method of presentation. 2. Accounts Receivable: Accounts receivable are net of the following allowances for doubtful accounts (amounts in thousands):
September 30, December 31, 1995 1994 Allowance for doubtful accounts $ 1,464 $ 1,684
3. Inventories: Inventories consisted of the following (amounts in thousands):
September 30, December 31, 1995 1994 Raw Materials $37,167 $29,581 Work-In-Process 16,050 19,433 Finished Goods 15,128 9,302 $68,345 $58,316
4. Earnings Per Common Share: The primary earnings per common share calculations are based upon the weighted average number of common and common equivalent shares outstanding during each period. The calculations also include, if dilutive, the incremental number of common shares issuable on a pro forma basis upon exercise of stock options, assuming the proceeds are used to repurchase outstanding common shares at the average market price during the period. The calculation of fully diluted earnings per common share begins with the primary calculation but further reflects, if dilutive, the conversion of the then outstanding convertible debentures (see Note 8 concerning the debenture redemption in May, 1995) into common shares at the beginning of the period and such incremental stock option shares should the market price of the Company common stock at period end exceed the average price. This calculation resulted in no reportable dilution for the periods ended September 30, 1995 and 1994, respectively. 5. Supplemental Cash Flow Disclosures: Depreciation and amortization expense, included in "Cash (used) provided by operating activities," in the Consolidated Condensed Statements of Cash Flows amounted to $10,435,000 and $6,591,000 for the periods ended September 30, 1995 and 1994, respectively. On September 29, 1995, the Company completed the largely non-cash spin- off distribution of its Truck Products business and investment in GO/DAN Industries. See Note 6 for a summary of the assets and liabilities distributed which included $4,002,000 of cash. Information with respect to cash paid during the periods for interest and income taxes is as follows (amounts in thousands):
Nine Months Ended September 30, 1995 1994 Interest paid $ 3,426 $ 3,225 Interest capitalized 297 509 Income taxes paid 16,962 177
6. Discontinued Operations: On September 8, 1995 the Company's Board of Directors declared a spin-off distribution of 100% of the common shares of its wholly owned subsidiary, TransPro, Inc. ("TransPro") to the Company's common stock shareholders of record at the close of business on September 29, 1995. Common shares were distributed on the basis of one share of TransPro common stock for every four shares of the Company's common stock. Prior to the distribution, the Company contributed to TransPro cash, the ownership interests in the net assets and liabilities of its Crown and G&O Manufacturing Company divisions and the stock of AHTP II, Inc. and Allen Heat Transfer Products, Inc., which owned the Company's 50% partnership joint venture interest in GO/DAN Industries ("GDI"). These entities comprised the Company's Truck Products Business (the "Business"). Following the distribution, TransPro became an independent, publicly traded corporation. On September 29, immediately prior to the distribution, the Company caused GDI to redeem the remaining ownership interest from the Company's other joint venture partner, Handy & Harman, thereby making GDI an indirect, wholly owned partnership of the Company. Handy & Harman received $24,750,000 in cash consideration from TransPro for its interests in GDI, which Transpro financed through borrowings under the term loan portion of its new credit facility. In connection with the spin-off distribution, the Company has presented the Business as a discontinued operation in the Consolidated Statements of Income for the three and nine-month periods ended September 30, 1995. The Company charged the net assets transferred to TransPro (which includes GDI on a fully consolidated basis as a result of the aforementioned redemption on September 29, 1995) against its retained earnings. A summary of the net assets distributed is as follows (amounts in thousands): Cash $ 4,002 Accounts receivable 41,650 Inventories 46,963 Other current assets 3,726 Property, plant and equipment 36,186 Other assets 7,590 Accounts payable and accrued expenses (35,552) Long-term debt (45,666) Other liabilities (8,250) $50,649 Summarized income statement information relating to the Business' results of operations for the previous four years (as reported in discontinued operations) is as follows (amounts in thousands, except per share data):
For the Years Ended December 31, 1994 1993 1992 1991 Sales $115,039 $ 93,660 $ 83,874 $ 70,973 Operating income 16,113 9,442 5,045 932 Equity income (loss) in joint venture 1,368 407 (3,646) (1,149) Net income (loss) 9,983 6,061 (3,673) (952) Income (loss) per common share .38 .26 (.19) (.05)
Summarized quarterly income statement information for 1994 and 1995 relating to the Business is as follows (amounts in thousands, except per share data):
For the Three Months Ended December September June March 31 30 30 31 1994: Sales $ 28,340 $ 29,250 $ 29,702 $ 27,747 Operating income 4,705 3,665 4,421 3,023 Equity income (loss) in joint venture 569 1,693 99 (694) Net income 3,075 3,123 2,655 1,130 Income per common share .11 .12 .10 .05 1995: Sales $ 27,381 $ 32,739 $ 32,813 Operating income 1,257 4,066 4,403 Equity income (loss) in joint venture 2,044 581 (406) Net income(a) 2,286 3,197 2,369 Income per common share .09 .12 .09
For the three months ended June 30, 1995 and September 30, 1995, discontinued operations also includes transaction costs related to the distribution of the Business of $311,000 (pretax - $500,000) and $422,000 (pretax - $700,000), respectively. 7. Acquisition: On March 17, 1995, the Company acquired an additional 40% interest in FOR.E.M. S.p.A. ("FOREM") located in Milan, Italy; the Company had previously acquired an initial 40% of FOREM in December 1994. The purchase price for the 80% ownership interest aggregated approximately $16,800,000 in cash, and includes costs of acquisition. In addition, the Company recorded an additional $3,500,000 in purchase price (resulting in an increase in related goodwill) during the third quarter 1995 pursuant to an earn out arrangement included in the acquisition agreement, which specifies that the former shareholders of FOREM may earn such additional purchase price based upon the earnings of FOREM. This additional purchase price is expected to be paid in the fourth quarter of 1995. The remaining 20% of FOREM's outstanding stock is subject to certain put/call arrangements between the Company and the sellers. The purchase price for this remaining 20% ownership interest is based upon a formula relative to the future earnings of FOREM. This acquisition has been accounted for under the purchase method of accounting; accordingly, results of operations include those of FOREM subsequent to the acquisition date. Results of operations for FOREM prior to the March 1995 share acquisition (reported under the equity method of accounting) were not significant. To facilitate preparation of financial statements on a timely basis, FOREM's financial position and results of operations are reported and included in the Company's consolidated financial statements on a two-month delayed basis. The Company has made its best estimate, based on information available at the present time, to allocate the purchase price based on the fair market value of the assets and liabilities acquired. Certain estimates inherent in these valuations are likely to change or have not been completed or formalized at this time and may result in some adjustment of the recorded assets and liabilities acquired, including the excess of cost over net assets acquired. Such excess is being amortized over a 20-year period. 8. Redemption of Convertible Debentures: In May 1995, the Company called for redemption of the remaining $4,917,000 of Convertible Subordinated Debentures, Series A and B, due July 30, 1999, which were issued in 1992 in connection with the Company's acquisition of Alliance Telecommunications Corporation. Subsequent thereto, holders of these debentures converted such debentures into a total of 351,834 shares of the Company's common stock. 9. Additional Information: Consolidated Statements of Income restated for, and excluding, the discontinued automotive and truck products business (as described in Note 6) for each of the last four years and quarterly results for 1994 and 1995 are as follows (amounts in thousands, except per share data):
For the Years Ended December 31, 1994 1993 1992 1991 Sales $216,313 $186,371 $129,079 $ 80,559 Costs and expenses: Cost of sales (129,085) (110,943) (66,686) (40,813) Selling, general and administrative expenses (46,362) (40,710) (31,045) (27,603) Research and development and product engineering costs (8,865) (7,886) (4,487) (2,611) Equity in loss of joint venture - - (96) (250) Interest and financing expenses (1,294) (2,190) (1,165) (666) Income before taxes and minority interest 30,707 24,642 25,600 8,616 Provision for income taxes (10,973) (661) (1,279) (1,605) Income before minority interests 19,734 23,981 24,321 7,011 Minority interests (523) (518) (608) (201) Income from continuing operations $ 19,211 $ 23,463 $ 23,713 $ 6,810 Income per common share $.74 $.93 $1.00 $.15
9. Additional Information, Continued:
For the Three Months Ended 1995 1994 Mar 31 Dec 31 Sept 30 June 30 Mar 31 Sales $59,265 $59,815 $55,230 $52,072 $49,196 Costs and expenses: Cost of sales (36,452) (36,707) (32,572) (30,002) (29,804) Selling, general and administrative expenses (11,482) (11,396) (12,180) (12,670) (10,116) Research and develop- ment and product engineering costs (3,585) (2,685) (1,671) (2,570) (1,939) Interest and financing expenses (193) (144) (279) (526) (345) Income before taxes and minority interest 7,553 8,883 8,528 6,304 6,992 Provision for income taxes (2,807) (3,083) (2,984) (2,326) (2,580) Income before minority interests 4,746 5,800 5,544 3,978 4,412 Minority interests (59) (111) (99) (161) (152) Income from continuing operations 4,687 5,689 5,445 3,817 4,260 Income from discontinued operations 2,369 3,075 3,123 2,655 1,130 Net Income $ 7,056 $ 8,764 $ 8,568 $ 6,472 $ 5,390 Earnings per common share: Income from continuing operations $.18 $.22 $.21 $.15 $.16 Income from discontinued operations .09 .11 .12 .10 .05 Net Income $.27 $.33 $.33 $.25 $.21 Average common and common equivalent shares outstanding 26,561 26,298 26,092 25,966 25,934
THE ALLEN GROUP INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Summary: For the three and nine months ended September 30, 1995, The Allen Group Inc. ("the Company") reported income from continuing operations of $7.6 million ($.28 per common share) and $18.8 million ($.70 per common share), respectively, compared to $5.4 million ($.21 per common share) and $13.5 million ($.52 per common share), respectively, during the comparable 1994 periods. The increase in income from continuing operations is due, in large part, to the initial inclusion of the operating results of the Company's 80% owned Italian subsidiary, FOR.E.M. S.p.A. ("FOREM") and its majority owned German subsidiary, MIKOM G.m.b.H. ("MIKOM") in the Company's 1995 results of operations, as well as continued strong sales by the Company's existing telecommunications business. The increase in operating income, however, has been tempered by higher spending by the Company on research and development for the Mobile Communications product lines, which is expected to continue at an increased level through the balance of the year. In connection with the spin-off distribution of its Automotive and Truck Products Business to its stockholders, the Company reported the operating results of such business as discontinued operations. Accordingly, the Company reported income from discontinued operations (excluding the related transaction costs) for the three and nine months ended September 30, 1995 of $2,286 ($.09 per common share) and $7,852 ($.30 per common share), respectively, versus $3,123 ($.12 per common share) and $6,908 ($.27 per common share) for the comparable 1994 periods. For further information regarding this transaction, see Note 6 of Notes to Consolidated Condensed Financial Statements. Sales: Consolidated sales from continuing operations by industry segment are:
Three Months Nine Months Ended Ended September 30, September 30, ($ Millions) ($ Millions) 1995 1994 1995 1994 Mobile Communications $85.4 $54.5 $225.4 $154.4 Centralized Automotive Emissions Testing 2.9 .7 6.0 2.1 $88.3 $55.2 $231.4 $156.5
Mobile Communications sales increased over the prior year periods by $30.9 million (57%) and $71.0 million (46%) for the three and nine months ended September 30, 1995, respectively. A major reason for this growth was due to the initial full consolidation of the Company's FOREM subsidiary and its German subsidiary, MIKOM, in 1995, contributing 62% and 50% of the sales increase of $19.1 million for the three months ended September 30, 1995 and $35.7 million for the nine months ended September 30, 1995, respectively. In addition, sales of site management products, base station antennas and frequency planning services from the Company's domestic Mobile Communications segment continue to contribute to the remaining sales growth of this segment. Centralized Automotive Emissions Testing sales consist of revenues from the Company's MARTA Technologies, Inc. ("MARTA") subsidiary. MARTA's sales grew by $2.2 million and $3.9 million for the three-month and nine-month periods ended September 30, 1995 over the same periods in 1994 and is primarily attributed to the start-up of the Maryland emission testing program on May 1, 1995. This industry has been hampered by an unsettled political climate that delayed programs previously awarded and the bidding and awarding of new programs; however, several states once again have begun to review their requirements which may lead to program proposals in the near term. As previously reported by the Company, MARTA's El Paso, Texas program has been suspended, along with similar programs for another contractor in Dallas and Houston, and it continues to remain unclear how, or with what type of program, the State will proceed with meeting the U.S. Federal Environmental Protection Agency ("EPA") requirements. It is highly probable that MARTA's centralized program will not be implemented, or may be implemented in a significantly reduced version. Pursuant to the terms of its Contract, MARTA is in the preliminary phases of the dispute procedure requirements as called for under the Contract. The Company continues to believe that its Contract provides for appropriate compensation should such changes occur, subject to the appropriation of funds by the State of Texas. Although the Company continues to incur certain costs (particularly interest on the carrying cost of its investment), these costs are, for financial reporting purposes, being expensed as incurred. Marta will pursue all remedies available to protect its interests regarding its contract with the State of Texas. The recorded carrying value of its investment in the El Paso program is approximately $7.8 million. MARTA's Cincinnati, Ohio program is expected to commence full revenue generating operations in early 1996. MARTA's Northern Kentucky program, originally scheduled to begin January 1, 1996, has been delayed as the State of Kentucky reviews the effect of the EPA's changing mandates on planned and implemented programs. Earlier in 1995, Kentucky had requested MARTA to limit its activities to the search for suitable test station locations, but not to enter into any contractual arrangements to lease or purchase property. In the third quarter of 1995, Kentucky and MARTA re-initiated negotiations for a nine to ten-year program, commencing on approximately October 1, 1996. These negotiations are continuing. Operating Income: Overall, gross margins on product sales approximated 38% and 41% for the three-month periods ended September 30, 1995 and 1994, respectively, and 39% and 41% for the nine-month periods ended September 30, 1995 and 1994, respectively. The decline in gross margins between periods is primarily attributable to the change in sales mix in the Mobile Communications segment offset, in part, by the inclusion of FOREM and MIKOM commencing with the second quarter of 1995. Selling, general and administrative expenses increased by $2.0 million and $5.5 million, respectively, for the three months and nine months ended September 30, 1995, respectively, compared to the same periods in 1994. The increase is primarily due to the inclusion of FOREM and MIKOM and to the start-up of the Maryland emissions testing program, both of which occurred in the second quarter of 1995. Selling, general and administrative expenses represent 16.1% and 17.5% of sales, respectively, for the three and nine-month periods ended September 30, 1995, respectively, as compared to 22.1% and 22.3% for the respective periods in 1994. The lower percentage of sales is due to the spreading of fixed expenses over higher sales as a result of the initial inclusion of FOREM and MIKOM as well as continued sales growth from the Company's existing telecommunications products. Due to the increasing significance of research and development and new product engineering costs, the Company is now separately classifying this item on its Consolidated Statements of Income and has reclassified prior periods to conform to the new format. Spending for the three months and nine months ended September 30, 1995 increased by $2.0 million (117%) and $6.3 million (102%), respectively over the comparable 1994 periods and is attributable to the Company's Mobile Communications segment. Such expenses represent 4.1% and 3.0% of sales for the three months ended September 30, 1995 and 1994, respectively, and 5.4% and 3.9% for the nine months ended September 30, 1995 and 1994, respectively. The Company expects research and development costs to continue at these increased levels through the end of 1995. Interest and financing costs: For the three months and nine months ended September 30, 1995, interest expense increased due to the inclusion of FOREM and MIKOM commencing with the second quarter of 1995, and because of an increase in the rates for the Company's industrial revenue bonds which are marked-to-market on either a weekly or monthly basis, offset in part, by lower long-term debt holdings. For the nine months ended September 30, 1995, interest income reflects higher income from the investment of cash generated from operations in short-term, tax-exempt securities, offset by lower interest income earned on the proceeds of a note received in May 1994 from the sale of the Company's automotive diagnostic equipment product line, which occurred in 1993. Although year to date interest income is higher than the comparable 1994 period, the Company's cash investments during the third quarter 1995 declined, which accounted for the decrease in interest income for the three months ended September 30, 1995 as compared to the 1994 period. Income Taxes: The Company's effective income tax rate on continuing operations for the three months ended September 30, 1995 and 1994 was 42.6% and 35.0%, respectively, and 40.4% and 36.2% for the nine months ended September 30, 1995 and 1994, respectively. The higher tax rates in 1995, and in particular for the third quarter of 1995, reflect the higher proportion of foreign income (FOREM and MIKOM) taxed at higher rates than the combined U.S. Federal and state income tax rates. Minority interests: The increase in minority interest in the 1995 periods, as compared to the comparable 1994 periods, is principally a result of the inclusion of the minority interest of FOREM and MIKOM commencing with the second quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES As set forth in the Consolidated Condensed Statements of Cash Flows, the Company used $16.2 million in cash from continuing operations for the nine months ended September 30, 1995 compared to cash generated from continuing operations of $31.2 million for the nine months ended September 30, 1994. The significant decrease in cash flow from operations is principally due to higher inventories levels and trade accounts receivable balances as a result of the increased sales volume in 1995 and a higher level of estimated income tax payments. The Company has made significant capital investments in test equipment and plant facilities for its Mobile Communications segment ($13.1 million) and for the Ohio emissions testing program of its Centralized Automotive Emissions Testing segment ($8.1 million). In addition, the Company acquired an additional 40% interest in FOREM on March 17, 1995 for approximately $8.3 million in cash (with an additional $3.5 million in purchase price to be paid to the former shareholders in the fourth quarter of 1995). All of these actions were financed by internally generated funds. The Company continues to utilize internally generated cash resources to fund its operating and capital activities, and at September 30, 1995, cash and equivalents totalled $11.0 million as compared with $55.2 million at December 31, 1994. These balances were principally invested in money market funds, bankers acceptances and Dutch auction, tax exempt securities (which are afforded one of the two highest ratings by nationally recognized ratings firms). With respect to the spin-off of its automotive and truck products business, the Company does not anticipate any significant impact on its liquidity or capital resources. The spin-off will enable both the Company, and TransPro to independently pursue their own respective strategies and objectives. The Company is currently employing a business strategy that involves, among other things, the expansion of its telecommunications equipment business, through both strategic acquisitions and internal development programs. In its pursuit of strategic acquisitions, the Company believes that the spin-off will enable it to use its common stock as an acquisition currency to effectively reduce the cost of such acquisitions to the Company. Further, in light of this strategy, the Company's Board of Directors has decided to discontinue cash dividends for the foreseeable future after the payment of the quarterly dividend of $.05 per common share declared on September 14, 1995. The Company believes that continued profitability, cash and short-term investments and available unused credit lines of $98 million, as well as unused credit lines for MARTA of $60 million, will provide sufficient liquidity to fund future growth, expansion and acquisitions. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (10) Contribution Agreement, dated September 29, 1995, between The Allen Group Inc. and TransPro, Inc. (11) Statement re computation of earnings per common share. (27) Financial Data Schedule. (b) Reports on Form 8-K The Company filed a Form 8-K Current Report dated September 8, 1995 in which it reported under Item 5 - "Other Events" that its Board of Directors had declared a spin-off distribution, subject to the satisfaction of certain regulatory approvals and other conditions, of 100% of the shares of a newly formed company to include Allen's Truck Products divisions and GO/DAN Industries. The Company filed a Form 8-K Current Report dated October 12, 1995 in which it reported under Item 2 - "Acquisition or Disposition of Assets" and Item 7 - "Financial Statements and Exhibits" that it had effected the spin-off distribution, on a pro rata basis, of 100% of the outstanding shares of common stock of the Company's wholly owned subsidiary, TransPro, Inc., to holders of record of the Company's common stock as of the close of business on September 29, 1995. For additional information, see Note 6 of Notes to Consolidated Condensed Financial Statements. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Allen Group Inc. (Registrant) Date: November 13, 1995 By: /s/ Robert A. Youdelman Robert A. Youdelman Senior Vice President-Finance (Chief Financial Officer) Date: November 13, 1995 By: /s/ James L. LePorte, III James L. LePorte, III Vice President, Treasurer and Controller (Principal Accounting Officer) THE ALLEN GROUP INC. EXHIBIT INDEX Page Exhibit Number: (10) Contribution Agreement, dated September 29, 1995, between The Allen Group Inc. and TransPro, Inc. (The schedules and exhibits to the Contribution Agreement have been omitted, but will be provided upon request.) (filed as Exhibit 2.1 to Registrant's Form 8-K dated October 12, 1995 (Commission File Number 1-6016) and incorporated herein by reference)...................................... - (11) Statement re computation of earnings per common share....................................... 20 (27) Financial Data Schedule ........................... 21 EXHIBIT 11 THE ALLEN GROUP INC. EARNINGS PER COMMON SHARE DATA (Amounts in Thousands) Net income and common shares used in the calculations of earnings per common share were computed as follows:
Three Months Nine Months Ended Ended September 30, September 30, 1995 1994 1995 1994 Income: Net income applicable to common stock - primary $ 9,472 $ 8,568 $25,918 $20,430 Adjustment for fully diluted: Convertible debenture interest - 47 80 137 Net income applicable to common stock - fully diluted $ 9,472 $ 8,615 $25,998 $20,567 Common Shares: Weighted average outstanding common shares 25,755 25,355 25,575 25,337 Common stock equivalents 1,419 737 1,263 659 Common shares - primary 27,174 26,092 26,838 25,996 Common shares issuable for: Stock options 39 99 68 38 Conversion of debentures - 359 166 359 Common shares - fully diluted 27,213 26,550 27,072 26,393 The calculation of fully diluted earnings per common share is submitted in accordance with Regulation S-K Item 601(b)(11) although not required for income statement presentation because it results in dilution of less than 3 percent.
EXHIBIT 27 FINANCIAL DATA SCHEDULE EX-27 2
5 1,000 9-MOS DEC-31-1995 SEP-30-1995 11,005 0 89,630 (1,464) 68,345 172,688 76,449 (19,491) 336,295 87,338 30,961 29,508 0 0 171,317 336,295 231,445 231,445 (142,316) (142,316) (52,806) (185) (1,243) 34,895 (14,090) 18,799 7,119 0 0 25,918 .97 0
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